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Ericsson (ERIC) Q2 Earnings: Another Earnings Miss in Store?


Telefonaktiebolaget LM Ericsson ERIC is set to report second-quarter 2017 results on Jul 18.

Last quarter, the company missed estimates for the fifth consecutive quarter, recording a massive negative surprise of 1000%. Consequently, it has an average negative surprise of 280.1% for the trailing four quarters.

Let's see how things are shaping up for this announcement and whether Ericsson is set to add yet another earnings miss to its losing streak.

Factors to Consider

Ericsson is in the midst of its worst crisis in a decade, grappling with shrinking markets and stiff competition from China's Huawei and Finland's Nokia. Sluggish industry trends have significantly reduced product demand for the company.

Ericsson, like most other telecom equipment makers across the world, is distressed as customers are investing less and less in 4G and 3G services, while waiting for the introduction of 5G networks. Challenging macroeconomic conditions in the emerging nations are acting as a deterrent for major investments by telecom equipment behemoths. Slowdown in spending by wireless carriers severely hurt the company’s financials in the past few quarters and is likely to hurt the second-quarter results as well.

Particularly, straight quarters of revenue declines and contract losses in Italy and Russia have made matters worse for Ericsson. This trend is unlikely to reverse itself in the to-be-reported quarter, thus hurting profitability and sales. To turn its fortunes, Ericsson came up with an elaborate restructuring plan to cut costs and focus on strategic areas. Most of the write downs and restructuring charges were booked in first-quarter 2017, which led to the huge losses that the company reported.

Ericsson Price, Consensus and EPS Surprise

Soft mobile broadband demand and slowdown in emerging markets will continue to put a significant dent in Ericsson’s performance. These factors will likely manifest in the company’s sales in the to-be reported quarter. In fact, it expects the industry trends and business mix in mobile broadband to prevail this year as well.

Despite these challenges, Ericsson is the world’s largest supplier of LTE technology, with a significant market share and has established a large number of LTE networks worldwide. Also, the Ericsson-Cisco partnership, which has been shaping up well ever since its inception in Nov 2015, is winning Ericsson lucrative awards, which should positively impact the upcoming quarterly results.

Earnings Whispers

Our proven model does not conclusively show that Ericsson will beat on earnings estimates in this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is not the case here as you will see below:

Zacks ESP: Earnings ESP for the company is currently pegged at 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 5 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Ericsson has a Zacks Rank #5 (Strong Sell). We caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks That Warrant a Look

Here are some companies that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:

AGCO Corporation AGCO, with an Earnings ESP of +0.97% and a Zacks Rank #1 (Strong Buy), is expected to release its quarterly numbers around Jul 27. You can see the complete list of today’s Zacks #1 Rank stocks here.

Belden Inc. BDC, with an Earnings ESP of +0.83% and a Zacks Rank #1, is slated to report its results on Aug 2.

Caterpillar Inc. CAT, with an Earnings ESP of +7.76% and a Zacks Rank #2, is expected to report quarterly numbers on Jul 25.

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